Sainsbury's supermarkets boss Justin King has reported slower sales growth and has warned that the economy is far from out of the doldrums.

King said that although official figures out later this month are likely to show Britain is officially out of recession and consumers are feeling "bouncier", he expected the economy to be "at best flat" in the coming months as the impact of higher taxes and public spending cuts kicks in. He added: "It is wrong to call a turn."

Sainsbury's was reporting second quarter like-for-like sales up 5.4% – down from the 7.8% rise it achieved in the first quarter, but substantially better than the 3.1% revealed by Tesco on Tuesday. The Tesco figures covered the quarter to the end of August, while Sainsbury's related to the three months to 3 October. Both grocers say like-for-like sales are declining as a result of lower food price inflation, which a year ago was in double figures but has now almost completely disappeared.

King also questioned Leahy's assertion that Tesco had started to regain ground lost to its rivals in the past year and in recent weeks had overtaken Sainsbury's, Morrisons and Asda in like-for-like sales growth. "It is not a statement I recognise," said King. "Our figures are bang up to date. They are significantly better than Tesco's and they overlap quite considerably. I have not seen any figures quoted for the period he talked of."

The Sainsbury's boss said shoppers "are in a much better place than they were a year ago" and that their renewed confidence was reflected in strong growth in non-food ranges and increased sales of premium-priced ranges, such as top-of-the-range ready meals and meat reared in line with RSPCA-approved guidelines.

Weekly transactions at the third biggest supermarket now exceed 18.5m, up 800,000 on 12 months ago. The grocer has opened 19 new supermarkets, including 14 Somerfield and Co-operative outlets in March.

Sainsbury's shares were down 3% at 313.2p as some analysts voiced concern that it is facing particularly tough competition from a resurgent Waitrose at the top end of the market, and from Tesco, which is getting a boost from its relaunched Clubcard loyalty scheme.

King has been linked with the top job at Mark & Spencer, which M&S executive chairman Sir Stuart Rose has pledged to fill by next summer. King has repeatedly suggested that he does not want to return to M&S, where he ran the food business, and insisted he was staying put. "I intend to stay at Sainsbury," he said.

In contrast, Nick Raynor, investment adviser at The Share Centre, rates Sainsbury's only as a hold, but is recommending Tesco as a buy for "investors looking for more stability during the downturn and long-term growth". He added: "Tesco's portfolio is far more diverse and it continues to perform well both at home and away."